Originally posted in The Business Standard on 22 September 2024
Ensure primary fuel supply, clear dues: Power producers to govt
They claimed rampant money laundering devalued the taka drastically and pushed power prices up by Tk2 per unit
The country’s private power producers are struggling to import primary fuel due to a significant shortage of working capital which has forced them to operate at only 50-60% capacity resulting in frequent power cuts, said power producers and experts.
As financial troubles worsen for private power producers, to whom the government owes Tk22,000 crore, industry entrepreneurs called on the interim government to make a pivotal decision: Should the country explore its local resources or continue depending on imports for its primary fuel needs?
These views were presented during a roundtable on energy security organised by The Business Standard at its Eskaton Garden office on 19 September.
TBS Executive Editor Sharier Khan presided over the discussion while Deputy Editor Sajjadur Rahman moderated the session.
Call for clearing dues
Mostafa Moin, chief executive officer at Doreen Power, a private power producer, said: “Pay us our dues, we will give you adequate electricity.”
He explained how power producers incurred losses due to the sharp depreciation of the taka against the US dollar and increased interest payments on bank loans, as the state-owned Bangladesh Power Development Board (BPDB) failed to settle payments for electricity supplied by private power plants.
“We had to pay Tk3,000 crore as interest on bank loans in the last two-and-half years, while the drastic devaluation of the taka cost us another Tk5,000 crore. The biggest loss came in 2022,” Moin said.
“If the government had imported the fuel for us, we would not have faced this loss,” he added.
Due to the previous regime’s policy of neglecting local gas and coal exploration, imports are expected to remain the primary source of fuel for power plants in the near future, the power producers said.
They called for a reduction in fuel taxes and measures to stabilise exchange rate fluctuations to help lower electricity generation costs.
Underdeveloped fuel infrastructure
They also pointed out that the infrastructure needed to supply imported energy has not been developed.
“Why do we have only two floating storage regasification units (FSRUs) and endure three months of difficulties if one goes out of order? Why aren’t there more pipelines when the existing ones are already stretched to their limits?” asked Imran Karim, vice chairman of Confidence Group, which operates power plants among other ventures, highlighting the issue of insufficient infrastructure.
Industries and power plants suffered from an acute gas crisis as a privately owned floating storage and regasification unit was damaged by cyclone Remal in May early this year and it took months for the ship-to-ship LNG import terminal to resume operation.
To ensure the supply of primary fuels, Imran suggested that the interim government must take up a holistic approach and decide whether it would depend on import or go for local exploration and build infrastructure accordingly.
“A half-exploration, half-import approach won’t help much,” Imran said, adding that they have drafted a futuristic assessment of the country’s energy scenario for the 2024-30 period and are ready to share it with the government and other stakeholders for a comprehensive, holistic approach for the sector.
How a shift in fuel mix pushed up power costs
According to entrepreneurs, the cost of electricity generation is lowest when using natural gas, and it remains the most economical when natural gas is blended with imported sources like liquefied natural gas (LNG).
Imran Karim said that in FY2018-19, around 70% of the country’s electricity was generated using gas, but this figure dropped to 52% in FY2022-23. Of that gas, 30% was imported, meaning local gas contributed only 35%. Currently, 75% of the fuel must be imported, driving up our expenses on fossil fuels.
Between 2019 and 2023, the cost of fossil fuels for power plants surged by 97%, with 35% of that increase due to the taka’s sharp depreciation from Tk85 to Tk108 per dollar, he said.
Additionally, taxes on imported heavy fuel oil (HFO) accounted for another 30% rise in costs, said Imran, a former president of the Bangladesh Independent Power Producers’ Association (BIPPA).
Md Shafiqul Islam, a professor in the Nuclear Engineering Department at Dhaka University, criticised the approach of relying heavily on imports — ranging from fuel to expertise and technology — while initiatives to develop and utilise local resources remain scarce.
He emphasised that there is significant potential for reducing electricity generation costs by fostering and engaging local technologists and experts.
How money laundering affects power prices
Entrepreneurs questioned why the taka has depreciated so dramatically since April 2022, when the US dollar was valued at Tk85-86. By September of that year, it had risen to Tk106, and in 2023, it climbed further to Tk110, reaching Tk120 in 2024.
“If there hadn’t been any money laundering, the taka wouldn’t have depreciated to this extent,” said Abu Bakar Chowdhury, chairman of EPV Thakurgaon Limited, a joint venture power plant using HFO.
Analysing data from the last 20 years, he said that exchange rate variations typically ranged from 5-7%, but now stand at 35%. “As a result of this massive fluctuation, we’ve lost $1 billion,” he added.
Imran said the unchecked outflow of money has led to a sharp decline in the local currency’s value, driving up the cost of dollars and significantly increasing electricity prices, placing a greater burden on consumers.
“Without money laundering, electricity prices could be Tk2 lower per unit,” he said.
Imran also emphasised that power plants would need to rely on imported fuels in the near future and questioned the rationale behind the 30% tax on HFO fuel while simultaneously spending heavily on energy subsidies.
Is the energy sector trapped in a vicious cycle?
Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), said, “We are trapped in a vicious cycle in the power sector with rising costs, low revenues, mounting losses, chronic deficits, reliance on government subsidies, foreign borrowing, more loans, and escalating expenses. This cycle seems unbreakable.”
“It is not simply a matter of resolving everything with $12-15 billion. The power sector has inherent weaknesses. Unless we can bring down production costs and reduce energy prices, breaking free from this cycle may remain out of reach,” he said.
The economist pointed out how improper demand projection led to surplus capacity in power generation. He was critical of private companies for venturing into power plants without having a clear projection of the country’s energy needs.
“Even without knowing the actual demand, when private companies invest, it’s clear that there is some assured and guaranteed income,” he said, explaining why IPPs are now suffering.
Moazzem also said in the history of Bangladesh, there has never been a sector where a single group could influence policies, recruitment, structures, and private sector investments as much as they have in the power sector over the last 10 years.
“In the case of gas and LNG, we have clearly seen how LNG lobbying pushed aside gas exploration. On one hand, a Swedish company was finalised for gas exploration, but suddenly in 2017, they were sidelined and LNG imports got the focus,” Moazzem said, calling for open bidding for future energy projects.
Govt should review energy deals, including Adani
GSM Shamsuzzoha Nasim, director of Business Development at Dipon Group, said the interim government should reevaluate all energy agreements and their components, including capacity charges and construction costs. “The Adani deal should be cancelled,” he asserted.
Moazzem from the CPD added that there is little opportunity for investing in new power plants; the focus should instead be on phasing out existing non-viable plants.
He suggested that the government renegotiate various terms of the contracts for those that remain operational. “Given the government’s current inability to fulfil its commitments, it’s time to rethink and renegotiate,” he stated.
Reestimate energy demand, modernise the grid
Sakib Bin Amin, an associate economics professor at North-South University, emphasised the need to re-estimate energy demand due to the lack of credible data in Bangladesh.
He also suggested that the private sector should be allowed to participate in the distribution and transmission of power.
Shafiqul Alam, lead analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said Bangladesh has made significant investments and expansions in the power sector, but the necessary modernisation of the national grid has not been done. That infrastructure now needs to be developed.
“Our transmission loss is higher than the global average. This isn’t just transmission loss, it’s system loss. We need to investigate the reasons behind the 6-7% system loss. If this can be reduced by 2-4%, we could save Tk4,000 crore to Tk5,000 crore,” Alam added.
‘IPPs not all bad’
In his efforts to break the myth about capacity charge, Navidul Huq, managing director at Desh Energy Chandpur Power Company Limited, said this arrangement is not unique to Bangladesh, it is in practice in countries across Asia, Africa, Europe and Latin America as well.
“Independent Power Producers [IPPs] in Bangladesh should not be blamed for this. It is, in fact, a guarantee for investors to cover their investment,” he said.
Navid regretted that IPPs, though an integral part of the energy system, are never called for policymaking dialogue.
“We have invested here, we made both loss and profit. Are we involved in the preparation of the power sector master plan? Did the Power Development Board call us ever?” he asked.
Refuting the commonly-held belief that the “IPP model is for plundering public money,” Abu Bakar Chowdhury of EPV Thakurgaon Limited said an electricity entrepreneur needs to make an initial investment of $150m-$200m and has to wait for 14-20 years to get a return on investment, which is getting riskier gradually.
“Who will guarantee our investment?” he asked, stating that foreign direct investment in power plants has come down to “almost zero” because of exchange rate volatility and lack of supportive policy.
Transition to clean energy
Citing his own economic analysis of the Rooppur Nuclear Power Plant, Professor Islam of Dhaka University said he found nuclear power cost to be the maximum Tk8 per unit, the second cheapest after gas.
He said that small-scale nuclear power projects could be highly cost-effective and efficient options for Bangladesh’s future energy security.
Similar suggestions came for solar energy.
Large utility-scale renewable power plants will not be viable for Bangladesh because of scarce land, but small distributive plants can be installed across the country, said CPD Research Director Khondaker Golam Moazzem.
“The lead should have come from the power producers’ association BIPPA, they can come forward in parallel to their existing generation projects,” he said, citing his visits to some wind and solar plants with promising results.
He said import duty on accessories created discrimination against renewable energy entrepreneurs. However, he questioned the solar power pricing formula and the agreement with Beximco for 17 cents per unit.
Shafiqul Alam from the Institute for Energy Economics and Financial Analysis proposed that the government lease land to entrepreneurs for establishing solar power plants which can help bring down the cost to 6-7 cents per unit.
The energy economist said rooftop solar panels could be a profitable option for industries, but that was not explored due to a lack of motivation.
He also demanded the withdrawal of 15% to 58% of taxes imposed on solar panel accessories.